Tuesday, August 16, 2011

Has Your Equity Line Been Reduced or Cancelled?

A potential class-action lawsuit could have an immense influence on the future of homeowner rights under the Truth in Lending Act and some consumer protection statutes.

Here’s the scenario:

You’re a home owner who has taken out a $100,000 home-equity line for home improvements. Cash has been pulled out to hire contractors and purchase materials for the renovation. Then a letter comes from the bank stating that the credit line has been canceled and there is no further access to it.

The bank claims that your home is worth substantially less than when the credit line was opened. And now you have bills to pay with no equity line available.

To add insult to injury, the bank has not done a formal physical appraisal, but an automated valuation done with no more than a computer program. If you believe your property to be worth more than the bank claims, you can appeal it and pay to have another formal appraisal done at your expense, but it will be with an appraiser of the bank’s choosing.

There are apparently huge numbers of home owners (in the millions) whose credit lines have been reduced, frozen or canceled in 2009. Banks were understandably gun shy during that time after the close call of near disintegration of the marketplace.

In Chicago, a federal district court has given the go-ahead to customers of J. P. Morgan Chase Bank to commence with a class action suit alleging that their equity lines were illegally reduced or cancelled. Chase attempted to get the case dismissed, but a judge rejected the bank's motion to dismiss the case, clearing the way for a possible giant class action suit.

Suits are being filed in six different states including California which should have a great (and hopefully positive) influence on the future of consumer protection laws for homeowner rights.

At the forefront of the suit will be alleged violations of truth in lending practices and consumer protection laws. The suits should bring attention to the manner in which the lenders are expediting these automated appraisals with tools and programs that are egregiously inaccurate in many cases. Word has it that there are similar suits being filed against other big players such as GMAC Mortgage, Wells Fargo and Citibank.

The Chicago law firm representing the plaintiffs found that the computer valuations used by J. P. Morgan Chase were "grossly in error" after later physical appraisals were done.

Also hovering about will be the issue of Chase having accepted $25 billion in emergency funds from the Treasury. This money was to be used to assist them in lending to borrowers in need of credit which was subsequently cut back.

In fairness, it should be noted that Chase has since paid back the treasury money and they are one of the better lenders in approving short sales in an expedient manner. It will be interesting to see how this shakes out...